The Central Bank in its annual report said other state enterprises owed the CPC 75.1 billion rupees and CPC in turn owed banks 223.4 billion rupees at the end of 2013, up from 22.1 billion rupees a year earlier.

In the past CPC had been financing losses of other state-run businesses including Ceylon Electricity Board, SriLankan Airlines and Mihin Lanka, through its borrowings, with the so-called circular debt contributing to balance of payments crises.

Bank financed losses of state enterprises which import energy, ultimately accommodated by central bank credit have been the primary trigger of Sri Lanka's balance of payments crises, including the latest in 2011/2012 which sent the rupee spiraling down to 130 from 110 to the US dollar.

When imported energy is market priced, an equal amount of spending power is taken away from the domestic market, curbing non-oil imports helping keep the trade deficit in line with actual dollar earnings, the exchange rate strong and inflation low.

In mid 2012 both petroleum product and power prices were raised as part of measures to end a balance of payments crisis.

With better rainfall which reduced the thermal generation and higher electricity prices the CEB made profits in 2013.

"In recent years, the losses made by the CEB have had a significant impact on the banking sector as credit levels remained at excessively high levels leading to crowding out of private sector investments thereby hindering the efficient channeling of funds to more productive investments," the Central Bank said.

"This had adversely affected the capital formation of the country while creating spillover effect on macroeconomic variables such as interest rates, employment, exchange rate and more importantly, fiscal management and inflation."

In the past industries were also using kerosene as it was subsidized and cheaper than diesel or petrol.

Kerosene which is similar to aviation turbine oil is the most expensive fuel to import, after diesel. Petrol is the cheapest fuel per litre but is sold at the highest price with heavy taxes charged from users.

The CPC refinery which was tuned to Iranian oil also had trouble producing light distillates after US sanctions blocked imports of the raw material. CPC had turned to other blends, which produced less yields.

The CPC was trying to speed up modernization of its refinery which would allow it to refine a broader range of crude and get a higher yield.